Around Rs 25,500 crore of highway projects could be under stress because of unfavourable macro-economic conditions, sub-optimal traffic performance and stretched debt levels, credit rating agency India Ratings & Research said in a report on Friday.
The agency called for “refinancing and risk balancing” of projects worth Rs 8,450 crore for the sector weighed by over leverage, lower-than-expected cash flows and land acquisition issues.
“Unless the projects undergo a structural change, such as debt restructuring or refinancing, the projects’ credit metrics are unlikely to improve substantially. Due to the capital intensive nature of highway projects, more than 70% of the sample projects have a debt/equity ratio higher than 2.3 times which further ratifies the extent of (over) leverage,” Chintan Lakhani, associate director India Ratings & Research said in the note.
The rating agency believes that 19% of the highway projects are over leveraged for the eight year period ending March 2025 because of lenders security of 1.2 times debt, which if not reduced could lead to projects breaching restrictive covenants embedded in the financing agreements.
However, the agency also mentioned some silver linings. “Ind-Ra believes that positive traction towards refinancing is already visible as developers with completed projects are tapping capital markets/banks for exploring refinancing opportunities to optimise on the rate of interest and tail. This would also aid in directing capital towards new projects. Refinancing would result in debt amortisation being better aligned with the expected cash flows thereby resulting in improved credit metrics and possibly positive rating movements,” the agency said. Isaiah Crowell Womens JerseyShare This